ABC with German cost accounting
Are you familiar with Grenzplankostenrechnung?
Translated from German, it roughly means "flexible margin costing." Flexible margin costing, or GPK, is a time-tested cost accounting system used by many companies in German-speaking countries. GPK is about marginal costing instead of full costing, short-term decision support instead of long-term, and cost centers instead of activities and processes. And by combining activity-based costing ABC) with GPK, you can add relevance to your cost accounting system.
Management accounting has long been more important to companies in German-speaking countries, such as Germany, Austria, and Switzerland, than to companies in the United States. This perhaps can be attributed to the external accounting rules in German-speaking countries, which put the interests of creditors before those of shareowners. In contrast, financial accounting provides little guidance for management decision making. Thus the need for a sophisticated cost accounting system--explicitly for management decision making--is paramount.
Meanwhile, in the U.S., the cost accounting system that has attracted the most attention since the mid-1980s has been ABC.
GPK UNPACKED
GPK was developed in the 1950s and 1960s by Hans-Georg Plaut, a practitioner, and Wolfgang Kilger, a cost accounting researcher. Both Plaut and Kilger were focused on developing cost accounting methods to support decision making. After its development, GPK became arguably the most important cost accounting system for industrial firms in German-speaking countries. In the past 20 years, its success can be at least partly attributed to the advent of SAP's enterprise resource planning (ERP) software because SAP offers the conceptual framework of GPK for cost accounting as part of its management accounting module.
Similar to direct costing, the most important idea behind GPK is that fixed costs aren't charged to products. If they were, managers would be induced to make incorrect short-term decisions, such as for pricing and make-or-buy decisions. In practice, however, GPK can be combined with a multilevel allocation of fixed costs.
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